California gets a 'C' in manufacturing

When it comes to creating jobs in manufacturing, California is a mere 'C' student.

That's according to a report released this month by Indiana's Ball State University, which graded each of the 50 states on how conducive they are to success in the fields of manufacturing and logistics. The reports, which have been released since 2008, are meant to give companies guidance on the economic climates that await them wherever they decide to host their operations.

"Certainly this is a tough time for California, and everybody likes to throw darts at you," said Ball State Professor Michael Hicks, who authored the study.

The study graded each state across nine categories.

Indiana - surprise - got the most A's, with four. It's a state where one of every five jobs is in manufacturing and logistics. Hicks said there is a lot of trade moving through Indiana via the Ohio and Mississippi Rivers.

The worst graded state? Hawaii and Rhode Island both led the way with four F's (Hawaii failed in manufacturing industry health, logistics industry health, global reach, and productivity and innovation. Rhode Island failed in logistics industry health, tax climate, expected liability gap, and productivity and innovation). But Little Rhody, as it's known, takes the crown for lowest manufacturing achievement because it earned two D's, while the Aloha state had one.

Here's how California's grade point average of 2.03 is configured, with some thoughts from Hicks:

Manufacturing Industry Health: C+: Measured on three aspects - share of total income earned by employees, wage premium paid to workers relative to other states, and non-durable goods produced such as clothes and foods. Overall, Hicks said high taxes and pension liability were keeping California's grade down in this category.

Logistics Industry Health: B: The movement of goods manufactured in California. Hicks said the state has issues exporting through the Port of Long Beach, which he called the "poster child of badness." He said congestion leading to that port has a real cost on the movement of goods.

Human Capital: C: While California has world-class universities, Hicks said the state struggles in the K-12 sector. The study says workers who can understand a more complex, computer based manufacturing environment are needed, which would be those who have a high school equivalent education.

Worker Benefit Costs:D: The cost of health benefits, casualty insurance, and retirement in California are high.

Tax Climate: D: California has high tax rates and could face a cut in public services. That doesn't translate well for manufacturing and logistics, Hicks said, because so much is dependent on public safety, public education, and transportation infrastructure to be well-maintained.

Expected Liability Gap: C: Hicks called it the behemoth in California. The unfunded pension liability. He said it's very worrisome to businesses because it is either going to mean higher taxes or a cut in public services.

Global Reach: C: Hicks said nearly all of California's exports are to Asia, meaning it doesn't reach other economies in Europe and South America.

Sector Diversification: D: California's main sector is agriculture, despite all of the biotechs and medical device companies here, Hicks said. He said it doesn't matter how large an industry is in a state; if there's only one, the grade will be low. As further proof, Michigan, the noted car manufacturer, also got a 'D' in this category.

Productivity and Innovation: A: California's bright spot. This state has world-class universities, and is a leader in research and development. Hicks said, however, that it doesn't necessarily translate into employment in manufacturing and logistics.